Independent Cinemas Sound Alarm Over Ending Paramount Consent Decrees, Call For ‘Larger FactuaI Inquiry’

Ted Johnson

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The association representing independent theater owners is asking a federal judge for a “larger factual inquiry” into the Justice Department’s proposal to end 71-year-old rules that have restricted studio distributors’ control over exhibition.

Earlier this month, the Justice Department filed a motion to terminate the Paramount Consent Decrees, the court-mandated restrictions put in place in 1948 that forced major studios to sell off their exhibition chains. The decrees were a significant factor in ending the so-called studio system era of Hollywood’s golden age.

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While the government’s Antitrust Division sees the consent decrees as long outdated, exhibitors and other industry groups warn that removing them will open the door to a host of business practices that will ultimately favor large-scale tentpoles over mid-level and independent movies.

U.S. District Judge Analisa Torres will decide whether to approve the DOJ’s motion.

In a letter to the judge last week, the Independent Cinema Alliance says that “nothing in existing antitrust law comes close to the elegance and power of the ‘theater-by-theater on the merits’ mandate that forms the heart of the Paramount Consent Decrees. Tens of thousands of Americans have enjoyed big-screen entertainment solely because of that mandate. The loss of that umbrella protection is another sea change in a stable industry that warrants careful scrutiny, as it has worked for decades, and for good and powerful reasons.”

The decrees prohibit a host of business practices, including such things as the practice of “block booking,” in which theaters have to take a package of movies in one license, and “circuit dealing,” or demanding a single license that covers all theaters in a circuit.

Under the DOJ’s plans, there would be a two-year sunset period on ending the ban on block booking “to allow the theatre and motion picture industry to have an orderly transition to the new licensing changes.”

The Independent Cinema Alliance is asking for court permission to file more extensive comments in a friend-of-the-court brief, as is the trade group representing major theater chains, the National Association of Theater Owners. The ICA wants a “larger factual inquiry concerning the salutary role of the Paramount Consent Decrees in the motion picture industry.” The Directors Guild of America and the Writers Guild of America also have expressed opposition to the termination of the decrees.

Not surprisingly, the major studios either support the DOJ’s plans or do not oppose them.

On Friday, attorneys for Paramount, Fox, MGM/UA and Columbia wrote in letters to the court that the studios did not oppose the termination of the decrees. An attorney for Universal wrote that the studio supports the DOJ’s move.

An attorney for Warner Bros. also said that the studio does not oppose the termination of the decrees, and wrote that the two-year sunset period “should provide for an orderly transition.”

“Warner Bros. reserves the right to seek to terminate the sunset period earlier, however, if circumstances warrant,” wrote the studio’s attorney, Glenn Pomerantz of Munger, Tolles & Olson.

The Walt Disney Co. did not file comments, as it technically was never among the studios covered by the consent decrees in 1948. At that time, Disney was much smaller, and did not form its own distribution outlet until 1953.

The Justice Department’s Antitrust Division move to terminate the Paramount Consent Decrees is part of an overall effort to eliminate so-called “legacy judgments” across a number of consent decrees across all sorts of different industries, on the argument that such restrictions are outdated. The DOJ also is looking at whether to modify or lift consent decrees that have covered a big chunk of the music licensing business for almost 80 years.

Makan Delrahim, the chief of the Justice Department’s Antitrust Division, said earlier this month that the Paramount Consent Decrees “have served their purpose, and their continued existence may actually harm American consumers by standing in the way of innovative business models for the exhibition of America’s great creative films.”

The DOJ argued in their motion to terminate the Paramount decrees that it would “make no economic sense” for the studios to “collude to once again limit their film distribution to a select group of theatres.”

The DOJ also argued that some of the business practices that were prohibited in the consent decrees actually may be beneficial, given the changes in the marketplace. For example, a film distributor may set minimum ticket prices in its theatrical licenses, eliminating price competition between theaters showing the same movie at the same time.

“Eliminating that competition would encourage those theatres to invest in better and more innovative consumer services – better seating, sound and projection systems, more amenities, and lower popcorn and soda prices – and more promotional efforts,” the DOJ said in its brief.

The DOJ also said that existing antitrust laws are sufficient to police future anti-competitive practices.

“Unlike the Decrees, the antitrust laws do not dictate or impose a specific distribution model, or require distributors to bid or license their products to every customer or even to the highest bidder,” the DOJ said. “Absent the Decrees, some existing movie theatres or movie distributors may thrive, while others may not.”

Yet in its letter to the court, the Independent Cinema Alliance suggested that, in originally considering whether to move to lift the decrees, the DOJ ignored warnings of new anticompetitive conduct.

“The DOJ’s hollow recitation that ‘general antitrust laws’ suffice to prevent antitrust injury is belied by its own failure to condemn a single ‘anticompetitive’ practice prohibited by the decrees, and its clear understanding that antitrust litigation (which typically costs millions of dollars) will be beyond the means of any independent cinema,” the group’s attorneys, G. Kendrick Macdowell and James J. Mahon wrote. “In other words, as every media gloss of the DOJ initiative declares, the obvious victims in this brave new world are independent cinemas.”

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